Managing a budget is critical and you must be able to discuss your budget and costs as a project manager. This PMP cheat sheet offers a brief review of key formulas and processes that define cost management.
Formulas for Cost Management
Learn formulas off this PMP cheat sheet to work through practice questions that require them.
- Planned Value (PV). Sometimes known as “budget” or as “budgeted cost of work scheduled.”
- Actual Cost (AC). Money spent on the project, including the costs of surprises like change requests and all other costs.
- Earned Value (EV). Value of project work completed to date. For example, if you are building a $1 million house that is 50% complete, your EV is $500,000.
Key Cost Management Formulas
- Cost Performance Index. CPI = EV/AC
- Cost Variance. CV = EV – AC. You might establish rules on cost variances. For example, monthly cost variances greater than $5,000 must be explained via a change request.
- Estimate At Completion. There are several formulas to calculate this value, depending on the situation. Practice using each formula
- Variance At Completion. ETC = EAC – AC (“EAC” is Estimate At Completion)
For this PMP cheat sheet, each of the following concepts includes inputs, tools and techniques, and outputs.
Cost Management Plan: What Are The Inputs?
For your cost management plan to succeed, it needs to be based on facts. Make sure you have access to the following inputs.
Project Specific Inputs:
- Project Charter. Vision for the project, which may be written before the project manager is selected.
- Project Management Plan. A living document created at the beginning of the project and updated regularly.
- Enterprise Environmental Factors. Consider influencing market conditions (e.g. is your market currently growing?) and company history.
- Organizational Process Assets. Assets that guide your work, such as a required budget form.
In the estimate costs area, you dive into the details of your cost management plan. Learn the difference between “estimate costs” and “determine budget” as the two concepts are closely linked.
Tools and Techniques for Estimate Costs include:
- Analogous Estimating. Consider costs and variables from previous projects to inform the present project.
- Parametric Estimating. Look for specific parameters that drive costs. For example, square footage for a building.
- Three Point Estimating. Simplifies multiple cost estimates into a single value.
- Expert Judgement. Independent, subject-matter expertise.
TIP: To fully understand concepts on this PMP cheat sheet, imagine you are working on a project and apply these concepts to that project as you study.
So far in this PMP cheat sheet, you have a cost management plan and a way to estimate your costs. Now, put together a cost document.
Outputs for Determine Budget
- Cost Baseline. The majority of the project’s budget. Add a supplementary amount – a management reserve – to address unforeseen expenses.
TIP: Cost estimates tend to become more accurate as the project progresses, so expect them to be revised.
Projects seek a certain return on investment, so if costs are not controlled, a project may be a loss to the organization.
Cost management generally involves these outputs:
- Change requests. Document important changes to the project.
- Cost forecasts. Your organization may ask for a monthly cost update.
- Project documents updates. Set aside time to update your assumptions log, risk register and related documents.
- Work performance information. Cost is a critical component to understanding work performance.
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